Public option for Click! Network would skip cable TV

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The future of Click! Network is being looked at from many angles. Under one model being considered, the city maintains control of its municipal broadband system, but it would no longer offer cable television.

A public model allows the city to determine policy, but at a cost. The city would assume all risk regarding how many customers would sign up for Click! If not enough do, the city would be responsible for paying for operations and debt service. This would require an ongoing subsidy. Keeping up with changing technology adds another dimension to the discussion, as upgrades that cost more than anticipated would require the city to issue more bonds.

Members of Tacoma City Council and Tacoma Public Utility Board heard a presentation during the Aug. 28 study session. It was delivered by Joanne Hovis of CTC Technology and Energy, the consulting firm hired to provide input on the process. The firm oversaw a request for proposals earlier this year that drew five responses. That has since been pared down to three.

TPU provided financial data for a public option, which the firm reviewed and vetted. At the heart of the decision-making process are 12 policy goals set by the council and board. They are: public ownership of assets; equitable access; low-income affordability; net neutrality; open access to assets; competition; safeguard city and TPU use; financial stability, economic development and educational opportunity; job options for Click! staff; consumer privacy and consumer goodwill. Hovis said she feels these goals are reflective of what has been accomplished thus far by Click! She stressed the importance of financial stability, as it is necessary to achieve the other 11 policy goals. Hovis said investments will need to be made in aging infrastructure. Also to consider are new operating costs to support customer services and marketing functions.

Under the public model, Click will offer retail Internet service, but no cable TV. There would be an upgrade to DOCSIS 3.1 to support services. This would be funded by service fees and a new tax of $10 million a year.

Low-income customers would get subsidized Internet service of $10 a month for 50 Mbps, with an assumption that five percent of households would use it.

Scenarios were presented based on take rates, or the percentage of people who would sign up for the service. Based on the experience of other markets, Hovis said 37 percent is at the high end of what the firm has seen in other competitive markets. It is possible to have a rate of 15 percent or less.

In the scenario with the lowest cost to upgrade the system, at a 15 percent take rate, the average monthly residential fee would be $39.50 and business fee $50.75. At a 25 percent take rate, the fees would be $27.50 and $38.87. For 37 percent, the fees would be $22 and $33.43. While Hovis noted that while Internet access for only $22 a month would very low, it “would be a great accomplishment” to achieve the 37 percent take rate. This has the city issuing bonds, in amounts between $11 million and $17.5 million.

A mid-grade upgrade estimate has a monthly residential fee of $64.50 and $75.50 for business at a 15 percent take rate. At 25 percent, the fees drop to $42.75 and $53.97. At 37 percent, they fall to $33 and $44.32. This has the city issuing bonds between $33.5 and $39.6 million.

A higher cost upgrade estimate has monthly residential fees at $89.50 and $100.25 for business at a 15 percent take rate. At 25 percent, the fees drop to $58 and $69.07. At 37 percent, they fell to $42.85 and $54.07. Bonds would be issued in the range of $54.4 to $62.4 million.

Hovis pointed out that keeping up with new technology over the next 20 years will be expensive. The city must keep in mind investments made by companies such as Comcast and Century Link. The latter has “substantially invested” in cities where it faces competition, as it does in Tacoma. Click! will need to offer “the same or better services as the other networks” to remain competitive, Hovis observed.

The $10 million a year from the tax reduces market and financial risk for the city, but increases political and legal risks.

Under the public/private collaboration model, a private entity would commit to expand and upgrade the system. The city and company would have a contract, allowing the city to place its policy goals within it. This model may eliminate ongoing operating losses.

Next is to commence negotiations in September with the three potential partners, with the intent to approve a contract in 2019. One potential partner is Wave Broadband. Several years ago TPU had discussions with the company about taking over Click!, which was met with opposition from the public and some council members.

Councilmember Ryan Mello said he felt good about the public model, but expressed concern about the lack of cable TV. He asked about the tax aspect. City Attorney Bill Fosbre said this model would need $10 million a year from a property or utility tax. The public would have to approve such a tax.

Board member Bryan Flint said he opposed the previous public/private partnership with Wave because it did not include the 12 policy goals. He is concerned about the lack of cable in the new public option, as he fears some customers would switch to a competitor who could provide cable and Internet.

Councilmember Anders Ibsen said he opposed the prior Wave deal because he felt it was not transparent. He wants an option that gives the city the strength of leveraging a public asset. He also wants the city to stay committed to the 12 policy goals.

Councilmember Justin Camarata said after the prior negotiations with Wave, there is “a need for rebuilding of public trust.” Noting how visionary Click! was when launched, he said “this is a good opportunity for a reset.”

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